Index Wrap, Wednesday, 10/08/2003

Take a peek and see what's there

by Jeff Bailey

If it were October 31 and Halloween, I'd have thought the major
indices had dressed up like a groundhog named Punxsutawney Phil,
stuck its head above yesterday's highs to see what was there, and
went back in a shallow hole the remainder of the session to wait
out some earnings reports and tomorrow morning's release of
weekly jobless claims and September import/export price data.

The tradition of Groundhog Day dates back to 1887 and was
originated in Europe. The first official trek to Gobbler's Knob
in 1887 had Punxsutawney Phil seeing his shadow, crawling back in
his hole, and predicting six more weeks of bad weather.

Only a twisted mind like mine could come up with such an analogy,
but a 2.5% decline from Japan's Nikke-225 on concerns for the
weakening dollar having a negative trade from the land of the
rising sun, weighing on the major indices here in the U.S.

That's right. The major indices popped their head above just
above breakeven, perhaps saw a shadow of weakness out of Japan,
and decided to wait things out in today's trade.

An upside earnings report from Dow component Alcoa (NYSE:AA)
$28.67 +1.70% after yesterday's closing bell did see the stock
jump to a session high of $29.21, but short of its 52-week set on
September 15, as top line revenues of $5.32 billion were slightly
below consensus of $5.55 billion. While AA said it saw
increasing demand for aluminum products, there's still some
wonderment when top line growth shows more than a 3.1% year-to-
year increase.

In today's after-hours trade, shares of Yahoo! Inc. (NASDAQ:YHOO)
$38.79 -0.35% sees after-hours trade at $39.50 after the global
Internet company reported Q3 (September) earnings of $0.10 per
share, which was a penny better than Wall Street's estimates.
Revenues grew 43.4% year-over-year to $356.8 million, which was
above estimates for $337.2 million. Looking forward to Q4, YHOO
said it sees revenues between $462-$502 million, which includes
an anticipated $105 million contribution from its recent Overture
acquisition. Consensus estimates for Q4, which do not included
Overture's contribution are at $371.95 million, and by my
calculation would have YHOO's comparable to consensus guidance
being between $357-$397 million and a range that is inline with
consensus.

The U.S. Dollar Index (dx00y) 91.63 -0.28% continued to show
dollar weakness in today's session with December euro futures
(eu03z) 1.1781 +0.24% and December yen futures (jy03z) 0.9141
+0.21% both gaining ground against the dollar.

Treasuries finished mixed in today's session after the Treasury
auctioned off $16 billion in new 5-year notes that brought a
yield of 3.139% and drew a bid to cover ratio of 2.25, which was
slightly stronger than the 2.2 average of the previous four
sales.

Comments from the auction had Drew Matus, senior financial
economist at Lehman Brothers saying, " This was a pretty good
auction. A five-year at 3.14% is not such a bad deal when you
look out at the inflation forecasts and the fact that the Fed
seems willing to leave rates alone." Federal Reserve Governor
Susan Bies seemed to echo Matus' comments when saying she did not
see a large risk of inflation pick-up any time soon.

There was little action or range in today's trade, and while the
BIX.X did lead in the WEEKLY pivot with a kiss of its WEEKLY R1,
buyers in the group (bulls or jittery bears) didn't feel an urge
to get a breakout to new highs going in today's trade. Tomorrow,
an upside trigger would be present at DAILY R1 (highlighted in
PINK) which could then set the stage for a sector leading rally
to the BIX's MONTHLY R2 as this would be the last level in the
matrix where I would look for resistance.

I've also highlighted the QQQ's DAILY S1 at $34.15 as a level
where we would see some correlation with its WEEKLY 38.2%
retracement, but with MONTHLY R1 at $34.07 and Tuesday's
"suspicious" low at $34.01, I'd still hold a shorter-term bullish
bias above $34.00.

All I'm trying to do with the BIX.X and perhaps the DAILY S1's is
observe a rather tight collar on the major indices at this point,
after a rather impressive run the past several days, where our
Stochastics on the daily interval charts are at "overbought"
levels, but where MACD's still present the observation that
bullish momentum exists.

S&P Banks Index (BIX.X) Chart - Daily Interval

I think I lost some subscribers with the comment that the BIX.X
was showing strength in its Pivot Matrix, relative to the major
indices. When we look at the SPX chart, the BIX.X looks similar
in that it too is challenging 52-week highs, but its is the FIRST
to test its WEEKLY R1 this week, and it was the FIRST to test and
move through WEEKLY levels last week, which may have hinted of
further bullishness for the major indices.

If the BIX.X can make the move to knew highs, this SECTOR has
good upside potential to its WEEKLY R2 of 323.41 in my opinion,
and the more "ramping higher" MACD gives the look that there's
still some upside momentum to be had.

I did get an upside alert on Washington Mutual (NYSE:WM) $40.33
+0.95% today, where $40.00 had been resistance the past two
months. While WM is NOT a component of the BIX.X, it is a
component of the more super-regional and multi-nation KBW Banks
Index (BKX.X) 915.53 -0.4%. What I take away from WM is one of
two things. Either some shorts are giving up on WM as a bearish
play as mortgage rates have eased back lower in recent weeks, or
some "value" bulls got a little more aggressive with the stock
today, as it has lagged the move higher in the broader banking
sector. One clue we might take away from this is that the MARKET
might have some type of confidence to buy a lagging or weaker
bank, on thoughts that there is some good news coming soon. I
can think of no other reasons for the stock finally breaking
above the $40.00 level.

In the above chart, I make an "eyeball approach" to thinking that
WM trades at a BIX.X equivalent, with the benchmarking
observation back to WM's 52-week high set on June 17, when the
BIX.X was trading around 315.00.

S&P 500 Index (SPX.X) Chart - Daily Interval

I've place some BIX.X levels on the SPX.X chart, which is my
mindset as to how the banks should impact the SPX. I'm going to
remain positive/bullish here after our weaker Washington Mutual
(WM) showed some strength from the bottom, but I still think it
would benefit the SPX if the banks bust the vault open and sprint
to new highs.

Economic data due out before the opening bell have economists
forecasting weekly jobless claims at 394,000, compared to prior
week's 399,000.

I don't see any economists' forecast for September Import/Export
prices. In August, import prices (excluding oil) fell 0.2%,
while export prices (excluding agriculture) were flat at 0.0%.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) see a
net gain of 5 stocks to point and figure buy signals as the
bullish % edges up 1% to 79.4%. Still bull confirmed.

QQQ tried to take a peek at its 52-week highs set on 09/18 and
09/19 of $34.86. Unfortunately for QQQ bulls, German software
maker SAP Aktiengesell (NYSE:SAP) $38.55 +14% doesn't have 4-
letters in its stock symbol and isn't a component of the QQQ.
MACD has been above Signal for 2-days now and QQQ shows some
intra-day new highs as a result. I would think it wise to snug a
bullish stop at $33.97. This would be juuuust enough under
MONTHLY R1 and yesterday's lows, where even slight clearing out
of bullish stops at $33.99 might still keep a bull in the stock,
but where $33.97 may be the loss of near-term momentum that has
the QQQ slipping back to fill its recent gap higher back lower
again.

With the Dow having traded in a tight range today, I wanted to
take a moment tonight to look at the Dow's PnF chart with WEEKLY
and MONTHLY levels overlaid. From last night's bar chart, we can
perhaps see how the MONTHLY 19.1% retracement is matching the
recent highs of 9,650 on the PnF chart, and how this WEEK's S1
and MONTHLY Pivot give the only "zone of support" that would tie
in with the INDU's PnF chart, which eventually had the Dow giving
a spread-triple-top buy signal at 9,400, where the 9,350 area
looks to be more of a zone of support right now. The MONTHLY
levels will be with us for another 3-weeks, while the WEEKLY's
will change. But lets look at the Nikkei-225, and see how the
INDU and NIkkei or oscillating back and forth, where the Dow
tries to lead and the Nikkei tries to follow, with the yen/dollar
being a common demonator, that the MARKETs seem to be trying to
sort out.

Nikkei-225 ($NIKK) Chart - 50-point box

The $NIKK got drilled lower after giving a double-bottom sell
signal at 10,850 and fell to 10,150 before a recent reversal back
higher to 10,900, and has reversed back lower, very close to
where the double bottom sell signal was given.

I've marked a column of X, which came during Japan's "tankan"
survey, which had Japan-based companies saying they held a
positive outlook on the economy, as long as the yen didn't
strengthen too much against the dollar. During that time, it was
also disclosed that the Bank of Japan has been intervening in the
currency markets and selling yen and buying dollar to try and
stem the yen's rise against the dollar.

However, in recent sessions, the yen continues to show strength
against the dollar, and this now has me putting some emphasis on
the Nikkei-225 needing to find support above 10,100, or we might
be alert for weakness in the Nikkei-225 below that level to have
U.S. markets softening. A break below Nikkei-225 gets as much
attention as did the break above 10,000 in the Nikkei-225 as it
relates to investor optimism in Asia.

As I conclude tonight's wrap, the Nikkei-225 is open for trading
and currently trades higher by 16 points at 10,558.51. So far,
its high/low has been 10,561-10,485, so a PnF chartist would
chart an additional "O" to the above chart.

Today's trade in the Dow Industrials saw no change in the very
narrow Dow Industrials Bullish % ($BPINDU). Still "bull
correction" status at 83.33%.